"Today Mongolia is an integral part of India's Act East policy," PM Modi said after holding delegation-level talks with the Mongolian PM and also announced a line of credit of $1 billion for infrastructure projects.

Modi, speaking after delegation-level talks with Prime Minister Chimed Saikhanbileg, said both sides have also agreed to elevate their bilateral ties to a strategic partnership.

"We can work together to advance peace, stability and prosperity in the region," Modi said.

"You have called us your third neighbour and spiritual neighbour; we will always fulfil the responsibility that comes with this honour," he said.

Earlier during the day, Modi was accorded a ceremonial welcome at the State Palace.

Modi, accompanied by the Mongolian leader, took the salute by the red and blue liveried armed forces.

The State Palace or Government House, built in the 1950s, is where the Mongolian president, parliament speaker and prime minister work from.

It also houses the parliament hall.The State Palace also houses a statue of Genghis Khan.

Modi also visited the ancient Gandan Monastery in the Mongolian capital and presented a sapling of the revered Bodhi tree to the chief abbot of the Buddhist temple.

Modi also lighted incense at the monastery, also known as the Gandantegchinlen Monastery.

He was accorded a ceremonial welcome by the chief abbot, Hamba Lama, who gifted him a blue silken scarf and a token.

Modi met 150 monks at the monastery and also saw the Buddhist relics at the museum.

He took a round of the monastery. He also went to the Janraisag Monastery, inside the Gandan monastery complex. The Janraisag monastery houses a 26-metre tall statue of Janraisag Buddha.

The Gandantegchinlen Monastery was established in 1835 by the Fifth Jebtsundamba, the highest reincarnated lama of Mongolia.

The monastery has three colleges of Buddhist philosophy: a medical and astrological college, a Kalachakra temple, a Jud Tantric College and an the Migjid Janraisig temple which houses the Avalokiteshvara statue.

Most Buddhist monasteries in Mongolia were destroyed during the communist regime, which lasted until 1990. The only one to survive was the Gandan Monastery.